Companies are receiving fewer loans for the first time since 2015 Stock exchanges newspaper

The tightest interest rate increase cycle in the history of the European Central Bank (ECB) is significantly slowing down lending to companies. For the first time since summer 2015, banks in the euro area granted fewer loans to companies in October than in the same month last year. In October, lending contracted by 0.3%, the ECB announced on Tuesday. In September there was an increase of 0.2%.

At the same time, companies in the euro area expect their access to financing to deteriorate further in the future, especially for bank loans. This emerges from a survey also published by the ECB on Tuesday. “This suggests that part of the transmission of monetary policy to the financing conditions of companies has not yet taken place,” summarizes the ECB.

With ten interest rate increases in a row by a total of 450 basis points from July 2022 to September 2023, the ECB cooled down economic activity in the euro area as desired. The higher interest rates led to lower demand from companies for investments and to tighter financing conditions. A weaker economy reduces inflationary pressure.

The M1 money supply for October published on Tuesday also signals that the euro economy is continuing to slow down. M1 includes cash in circulation and non-bank demand deposits. Economists consider this money supply to be an economic indicator. In October it shrank by 10%, slightly more than in September when it fell by 9.9%. The broader M3 money supply fell by 1%.

The ECB is likely to welcome the fact that the companies it surveyed not only expect that financing options will worsen, but they also assume that prices and wages will rise less sharply than recently forecast. On average, companies expect their sales prices to increase by 3.7% in the next twelve months.

That is still well above the ECB’s inflation target of 2%, but is a sharp decline compared to the survey six months ago. At that time, companies expected an increase of 6.1%. When it comes to wages, companies expect an increase of 4.3% in the next twelve months, after 5.4% in the previous survey.

Bundesbank President Joachim Nagel warned on Tuesday against taking the fight against inflation lightly. “The disinflationary effects of lower energy prices have dissipated and we are still a long way from our target,” he said in a speech at the central bank in Cyprus. “We expect a bumpy road ahead with inflation going up and down in the near future.”

Nagel is also optimistic that the eurozone economy can avoid a hard landing. “The tight labor market, low levels of debt among companies and private households and brisk investment activity indicate that the conditions for a soft landing are in place.”